The gap between policymakers advocating growth and those pushing for austerity to solve the eurozone crisis is unlikely to narrow, as better than expected figures from the troubled eurozone added to the uncertainty over the single area’s outlook in the week of the IMF/World Bank meetings in Tokyo.
Greek exports pushed up industrial output by 2.5% in August, the first positive reading since April 2008, with some economists saying this was due to the country becoming more competitive because of the drastic fall in salaries since the crisis hit.
This does not mean a full-blown recovery is on the way, as industry only makes about 15% of Greece’s GDP, but it may send a signal that the reforms taken to restructure the economy are beginning to work.
German exports rebounded in August, advancing by a strong 2.4%, and French exports rose by 3.6%, an even more impressive gain. In September, the German ZEW indicator of investor sentiment jumped to -18.2 from -25.5, buoyed by hopes that the European Central Bank (ECB), headed by Mario Draghi, will buy Spanish bonds.
“Sentiment data is severely down [in Europe] but look for that to improve in the coming months, given that we have seen confidence rising over improving harder economic data,” Philip Suttle, chief economist of the Institute of International Finance, told Emerging Markets.
“France’s July-August hard data, particularly in industrial production, looks promising, certainty in comparison to [France’s] second quarter figures, though we will have to wait for September figures in France [before assuming that this is a longer-term theme],” he said.
Industrial output rose in France by 1.5% in August, defying forecasts of a fall, mainly due to a revival in car production, data released last Wednesday showed. The figures for July were revised to show a rise of 0.6% rather than the previously reported 0.2% increase.
In Italy, data released on Wednesday showed industrial output rising by 1.7% in August from July, when it contracted by a revised 0.1%. Economists surveyed by Bloomberg had predicted a fall of 0.5%.
“Both France and Italy reported robust industrial production data in July and August versus the second quarter. This is consistent with signs that we are starting to see the beginning of the end of Europe’s economic crisis,” Suttle said.
Even the usually bearish analysts at Capital Economics said the data, especially the eurozone’s trade figures for August, “are likely to support the view that the economy is unlikely to have contracted by as much as the business surveys currently suggest.”
But not everyone agrees that these are the first signs of a sustainable recovery.
Gerard Lyons, chief economist and group head of global research at Standard Chartered Bank, said that while he agreed with some of Suttle’s comments on Europe, the biggest concerns were about “stubbornly high unemployment levels”.
Asked by Emerging Markets whether the good surprises on industrial production suggested that Europe was improving and this was the beginning of the end of the economic downturn, Lyons said: “No. There is a long way to go before Europe is close to long-term recovery.”